U.S. Stocks Edge Lower as Covid-19 Cases Rise

The Dow Jones Industrial Average slipped Monday, after hitting a record last week, as investors worried that elevated Covid-19 infection levels could weigh on economic growth through the winter months.

The blue-chip index fell 165 points, or 0.6%, in morning trading. The S&P 500 declined 0.2%, while the technology-heavy Nasdaq Composite rose 0.5%.

Stocks have rallied to record highs in recent weeks on brightening economic prospects due to the development of Covid-19 vaccines. But rising coronavirus infection levels and their potential impact on the rebound is weighing on sentiment. New restrictions intended to slow the spread of the virus in California went into effect Sunday night, after the number of people hospitalized in the U.S. because of Covid-19 hit another record.

“For U.S. growth, the vaccine is not going to have a substantial impact on this third wave,” said James McCormick, a strategist at NatWest Markets. “The U.S. growth picture in the very near term is clearly tilting lower.”

Data released Friday showed that U.S. job growth slowed sharply in November, suggesting the labor-market recovery is losing steam amid the surge in coronavirus cases and new business restrictions.

Source: WSJ

U.S. trade deficit widens in October

The numbers: The U.S. trade deficit widened by 1.7% in October, the Commerce Department said Friday.

The trade gap widened to $63.1 billion in October from a revised $62.1 billion in the prior month. The forecast of economists polled by MarketWatch expected a deficit of $64.7 billion.

What happened: Both imports and exports had strong gains in October. The goods deficit rose by $600 million in October and the services surplus narrowed.

Year-to-date, the trade deficit is 9.5% above the same period in 2019.

Big picture: There has been a sharp decline in trade activity in the wake of the global coronavirus pandemic. Exports and imports are roughly $300 billion below their levels of last October.

The widening of the deficit shows the power of the U.S. consumer to purchase goods from around the world.

Former U.S. Treasury Secretary Larry Summers is worried that the global economy will come to rely on U.S. consumer demand to fuel growth. The resulting trade imbalance “could mushroom with serious domestic political consequences,” he said. The incoming Biden administration is sure to push for countries like Germany and South Korea to increase demand.

Market reaction: Stocks were set to open higher Friday even after a soft November job report. The Dow Jones Industrial Average DJIA, +0.51% rose 85 points on Thursday.

Source: marketwatch

U.S. Added 245,000 Jobs Last Month as Hiring Slowed

U.S. job growth slowed sharply in November, suggesting the labor-market recovery is losing steam amid a surge in coronavirus cases and new business restrictions.

Employers added 245,000 jobs last month, less than half the 610,000 jobs added in October, the Labor Department reported Friday. The unemployment rate edged down slightly to 6.7% in November from 6.9% a month earlier.

November marked the seventh consecutive month of job gains at a steadily cooling pace. The labor market has now regained slightly more than half of the 22 million jobs lost at the onset of the pandemic.

Employers boosted jobs in the transportation and warehousing sectors last month, likely reflecting holiday hiring for e-commerce roles. Employment declined in government and in the retail category that includes bricks-and-mortar stores.

The U.S. economy overall has recovered much of the ground lost earlier this year, even though the expansion has slowed since the third quarter’s rapid rebound. U.S. consumers boosted their spending in October for the sixth straight month, and new applications for unemployment benefits—a proxy for layoffs—fell last week after a recent jump.

Source: WSJ

OPEC, Allies Near Agreement for Small Production Increase

The Organization of the Petroleum Exporting Countries and its allies are closing in on an agreement to modestly boost their collective oil output by as much as 500,000 barrels a day starting next month, people familiar with the matter said.

The agreement would mark a compromise among some of the world’s biggest producers as they meet later Thursday to formalize a deal.

The compromise bridges differences between the producers over whether the time was right to start rolling back cuts they and oil-producing allies agreed to earlier in the year in an effort to stabilize prices. Earlier this week, OPEC was leaning toward recommending keeping existing cuts in place for as much as three more months, according to people familiar with their deliberations. That ran up against opposition from some members who wanted to start pumping again as oil prices begin to recover.

That view is shared by Russia, which leads another big bloc of oil producers. OPEC and this Russia-led group, known as “OPEC-plus,” have acted in concert in recent months to stabilize oil markets after the pandemic closed swaths of the global economy, walloping demand.

The sanctioning of a modest production increase would represent a middle ground between a Saudi plan to extend curbs for three months and the group’s original plan to boost output of 2 million barrels a day in January.

Source: WSJ

The Market Should Worry About 2022, Not 2021

Amid a wave of optimism in financial markets, investors can relax about the expected profit rebound in 2021. They might worry more about 2022.

Even as Western nations struggle to contain another jump in Covid-19 infections, most S&P 500 sectors are now up year-to-date. Yet equities didn’t get much of a boost Wednesday when the U.K. approved for use the vaccine made by Pfizer and BioNTech . The power of good news about the pandemic seems to be subject to diminishing returns, raising the question: Is the profit rebound mostly priced in?

Wall Street is factoring in a 22% increase in S&P 500 earnings per share for next year. This seems reasonable, even cautious, following the expected 15% fall this year. This summer showed that consumption can return very quickly when restrictions are eased, and global trade and manufacturing already seem to be on a steady path to recovery. In 2010, after the global financial crash, profit growth was 40% as a result of a dismal 2009.

But forecasts for 2022, the first “normal” year after the crisis, say more about what the market is thinking. Those expectations look less grounded.

As of now, S&P 500 earnings per share are seen expanding another 17% in 2022. This is in line with what happened in 2011, when they rose 15%. Back then, however, profits were far less elevated because the downturn had lasted longer: Relative to their 2007 peak, they were up only 11% in 2011. Current expectations of 2022 earnings place them 21% above 2019 levels. Consumer-cyclical companies such as auto makers and hotels would be up 35% overall.

Source: WSJ

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Dallas Fed President Kaplan: Guidance Will Be Needed on Asset Purchases

A top Federal Reserve official said the central bank will need to decide on how to communicate its intentions to continue buying government assets but that broader changes to its policy stance, including by altering those purchases right now, weren’t needed.

In an interview Tuesday, Dallas Fed President Robert Kaplan said after getting through what he expected would be a difficult three-to-six month period for the economy due to the resurgence of coronavirus cases, officials need to “start thinking about how we want to begin to taper or communicate the composition and the size of our asset purchases.”

The Fed bought hundreds of billions of dollars of Treasury and mortgage-backed securities between March and June to stabilize dysfunctional markets, and it has continued buying $120 billion a month in those assets to maintain smooth functioning and hold down long-term interest rates to support the economy.

Officials at their meeting last month said they expected those purchases to continue over the coming months, and minutes of the meeting released last week showed they discussed providing more information as soon as their next meeting, Dec. 15-16, around how long they would keep buying those securities by linking the time frame for the stimulus program to economic conditions.

“We’re going to have to give some clarification, I think, in the not too distant future,” Mr. Kaplan said. “I could see where at some point we might give guidance on expressing the conditions under which we begin to taper, for example.”

Source: WSJ

Biden to Have a Better Economy in 2021 Than in 2009, But Worse Options

Joe Biden has been here before. Twelve years ago, as Barack Obama’s newly elected vice president, Mr. Biden inherited an economy laid low by a once-in-a-century crisis.

The good news is that, unlike then, the recovery from the pandemic-driven economic contraction is now under way and with vaccines about to be approved, an end to the latest crisis is in sight. The bad news for Mr. Biden is that while he and his team want to accelerate the recovery, they may not be able to do much about it. Monetary policy is largely exhausted and fiscal policy is at the mercy of Congress.

In 2009, Democrats controlled both the House and Senate. If Republicans win at least one of two runoffs in Georgia next month, they will retain control of the Senate, where they will likely take a harder line on deficits than they did under President Trump.

The emphasis Mr. Biden has placed on the recovery can be seen from who he has asked to steer it. If confirmed, Janet Yellen would be the first practicing economist to serve as Treasury secretary in two decades. She has spent her career in academia and government, including as head of the Federal Reserve, studying and managing the balance between unemployment and inflation.

Today, it is clear which is the priority. Like the financial crisis 12 years ago, “The pandemic and economic fallout…have caused so much damage for so many,” she said Tuesday. “It’s essential that we move with urgency. Inaction will produce a self-reinforcing downturn causing yet more devastation.”

Source: WSJ

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